what are the limitations of using per capita income as a development indicator
Answers
1. Per capita Income does not tell us how the income is distributed among the people.
2. It hides disparities. Some may be very rich but the masses may be poor.
3. Per capita Income can't be regarded as the sole indicator of development but other areas are also important like Life expectancy, Infant mortality rate , Literacy rate , gender equality etc.
4. Per capita doesn't tell us what an average person is likely to earn.
Limitations of per capita income are :
(i) A rise in per capita income is due to rise in prices and not due to increase in physical output, it is not a reliable index of economic development.
(ii) National income rises but its distribution makes the rich richer and the poor poorer.
(iii) It excludes all non-marketed goods and services, even though they may be important for human happiness and better quality of life.
(iv) Rise in per capita income may be due to use of modern capital intensive technology in production which may be labour displacing in nature thus adversely affecting the poor masses.
(v) If rate of population growth, is higher than the rate of growth of national income, this will lead to fall in per capita availability of goods and services and economic welfare.
(vi) Contribution of commodity to economic welfare may be higher than its money value e.g., money value of salt, needle, thread, etc. included in national income is lower than their contribution to economic welfare.
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